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Energy and the Wealth of Nations by Charles AS Hall and Kent A Klitgaard

This book could have been one of the most important economic treatises of recent times, with some heavy editing, says Tony Brooke-Taylor

1 SEPTEMBER 2012 | BY TONY BROOKE-TAYLOR
Book review, energy wealth

 

Publisher Springer

ISBN 1441993975 

RRP £72


The core themes of this book are the role that energy has played in economic growth and the limit to continued growth given our reliance on fossil fuels.

Having attended a lecture by Professor Charles Hall, I was excited at the prospect of reading this book. Now I have done so, I would recommend other readers be much more selective: the first chapter provides a comprehensive summary of the majority of it, while the most useful new insights come from the chapters with ‘EROI’ in the heading. 

EROI (Energy Return on Investment) is a concept developed by Hall to examine how organisms invest energy to obtain additional energy. The concept covers activities ranging from animals hunting for food to human investment in oil extraction.

While linking EROI to David Ricardo’s ‘best first’ economic principle, the authors explain the correlation between the massive economic growth of the past 100 years and the exploitation of oil in particular, along with an extrapolation to the implications of ‘peak oil’ – the point at which the rate of oil extraction reaches its maximum – for what many still hope is only a temporary cessation of real growth in most western economies.

The book covers a history of mankind’s development, particularly economic development, highlighting breakthroughs in technology that have allowed us to exploit energy. The authors review various economic models, with the added ingredient of the way in which energy has allowed us to develop beyond what we would be able to achieve through our own physical labour alone. 

There is strong criticism of several flaws that the authors see in most current economic models, including the treatment of energy as essentially a free resource, the exclusion of detrimental environmental effects of economic activity from the assumed costs, and a loss of realism in favour of mathematical elegance. The authors dedicate a whole chapter to what amounts to an attack on neoclassical economics that would be worthy of more sensational authors such as Naomi Klein.

In summary, this book uses far more words than necessary to make a basic point: improving overall affluence, exacerbated by a booming population, has literally been fuelled by a resource that is becoming increasingly difficult and costly to exploit. This is a far clearer and more immediate concern than, for example, the impact of our activity on the environment and the inequity of the distribution of wealth.

While the book does offer some helpful suggestions as to how individuals, society and policymakers might react to this problem, these are not well-developed. Instead, the authors seem to have thrown every argument they can into getting the attention of policymakers and, arguably, the majority of economists, who still choose to assume that technology and substitution will overcome the exhaustion of cheap fuel. 

With some aggressive editing, this book could have been more compelling than it is – which is a pity, because it is potentially one of the most important economic treatises of recent times.

Tony Brooke-Taylor is the general insurance risk director at Aviva and a member of the Actuarial Profession’s resource and environment member interest group